Canon 2004 Annual Report Download - page 58

56
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and
Significant Accounting Policies
(a) Description of Business
Canon Inc. (the “Company”) and subsidiaries (collectively
“Canon”) is one of the world’s leading manufacturers in such
fields as office imaging products, computer peripherals,
business information products, cameras, and optical related
products. Office imaging products consist mainly of copying
machines and digital multifunction devices. Computer
peripherals consist mainly of laser beam and inkjet printers.
Business information products consist mainly of computer
information systems, micrographics and calculators. Cameras
consist mainly of single lens reflex (“SLR”) cameras, compact
cameras, digital cameras and video camcorders. Optical
related products include steppers and aligners used in
semiconductor chip production, projection aligners used in the
production of liquid crystal displays (“LCDs”), broadcasting
lenses and medical equipment. Canon’s consolidated net sales
for the years ended December 31, 2004, 2003 and 2002 were
distributed as follows: office imaging products 33%, 34% and
35%, computer peripherals 33%, 34% and 36%, business
information products 3%, 4% and 5%, cameras 22%, 20%
and 16%, and optical and other products 9%, 8% and 8%,
respectively.
Sales are made principally under the Canon brand name,
almost entirely through sales subsidiaries. These subsidiaries
are responsible for marketing and distribution, and primarily
sell to retail dealers in their geographical area. Approximately
73% of consolidated net sales for each of the years ended
December 31, 2004, 2003 and 2002 were generated outside
Japan, with 30%, 33% and 34% in the Americas, 31%, 30%
and 29% in Europe, and 12%, 10% and 10% in other areas,
respectively.
Canon sells laser beam printers on an OEM basis to
Hewlett-Packard Company; such sales constituted
approximately 21%, 20% and 21% of consolidated net sales
for the years ended December 31, 2004, 2003 and 2002,
respectively.
Canon’s manufacturing operations are conducted primarily
at 18 plants in Japan and 14 overseas plants which are located
in the United States, Germany, France, Taiwan, China,
Malaysia, Thailand and Vietnam.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with financial accounting
standards of Japan. Foreign subsidiaries maintain their books
of account in conformity with financial accounting standards
of the countries of their domicile.
Certain adjustments and reclassifications have been
incorporated in the accompanying consolidated financial
statements to conform with accounting principles generally
accepted in the United States of America. These adjustments
were not recorded in the statutory books of account.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company, its majority owned subsidiaries and those
variable interest entities where the Company is the primary
beneficiary under FASB Interpretation No. 46 (revised
December 2003) (“FIN 46R”), “Consolidation of Variable
Interest Entities.” All significant intercompany balances and
transactions have been eliminated.
(d) Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the period. Significant estimates and
assumptions are reflected in valuation and disclosure of
revenue recognition, allowance for doubtful receivables,
valuation of inventories, environmental liabilities, deferred tax
assets and employee retirement and severance benefit plans.
Actual results could differ materially from those estimates.
(e) Cash Equivalents
All highly liquid investments acquired with an original maturity
of three months or less are considered to be cash equivalents.
(f) Translation of Foreign Currencies
Assets and liabilities of the Company’s subsidiaries located
outside Japan with functional currencies other than Japanese
yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items
are translated at the average exchange rates prevailing during
the year. Gains and losses resulting from translation of
financial statements are excluded from earnings and are
reported in other comprehensive income (loss).
Gains and losses resulting from foreign currency
transactions, including foreign exchange contracts, and
translation of assets and liabilities denominated in foreign
currencies are included in other income (deductions). Foreign
currency exchange losses were ¥17,800 million ($171,154
thousand), ¥20,311 million and ¥23,468 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
(g) Marketable Securities and Investments
Canon classifies investments in debt and marketable equity
securities as available-for-sale, or held-to-maturity securities.
Canon does not hold any trading securities which are bought